Business Method Patents in Jeopardy

By Pike, George H. | Information Today, January 2009 | Go to article overview

Business Method Patents in Jeopardy


Pike, George H., Information Today


The number of patents issued by the U.S. Patent and Trademark Office (USPTO) has risen dramatically over the last 20 years. Between 1980 and 1987, the USPTO issued between 60,000 and 80,000 patents per year. Then between 2000 and 2007, the range rose to 197,000 patents per year.

Some of the increase can be attributed to the growth of digital technologies covering the internet, computer hardware and software, and wireless and cellular communications. These have also raised concerns about other questionable patents being issued, patent "trolls" (people who buy questionable patents and then exploit licensing fees out of users of similar technology with the threat of lawsuits), and increased business and litigation costs in challenging and defending patents. Many congressional discussions about patent reform have addressed these concerns.

New and Useful Process

One other factor has contributed to the rise in patents: the increasing use of "business method" patents. U.S. patent law allows patents to be issued for "any new and useful process," generally identified as a particular series of steps required to complete a specific task. In the late 1990s, the USPTO recognized a patentable business method as the use of computers to achieve those tasks with the result being a method of engaging in a particular business, such as ecommerce. A federal court confirmed this in 1998. As a result, the number of patents issued tripled under the USPTO classification that included "business practices."

Business method patents are an important part of the banking, insurance, ecommerce, and software industries. One business method patent issued to an insurance company patents a method of determining insurance rates by when and where the car is driven. Internet companies use business method patents to protect the way that their algorithms and other technologies conduct business.

In re Bilski

Another business method patent application sought to patent a method of hedging risk in commodities trading.The proposal outlined a series of steps that mainly involved how commodities were bought and sold through a third party that would isolate the buyers and sellers from risk. The USPTO rejected this application, and the applicant appealed. The Oct. 30, 2008, decision of the Court of Appeals for the Federal Circuit that rejected the patent, In re Bilski, is now being identified as a landmark decision that raises questions about the continuing viability of new and existing business method patents.

The court's decision attempted to clarify when a business method meets the requirement of a "new and useful process" as required by the patent statutes. In looking at this issue, the court examined a number of tests that had been proposed or adopted in previous cases. Each of these tests sought to outline the requirements that a business method must meet to be eligible for a patent. It was the differences in these various tests that prompted the Bilski court to reach its decision.

Human Thinking

The court first identified the elements of a business method that could not be patented: "Laws of nature, natural phenomena, abstract ideas," and the "processes of human thinking" cannot be patented. While a law of nature or abstract idea (a mathematical equation or algorithm) can be part of a patented process, the process has to be more than just the sum of ideas, laws of nature, and the thought processes. …

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